1. You have three (3) hours to complete this exam. You are not required to spend the entire time working on the exam - the average time for completion is between two and three hours. I recommend that you spend one hour on the multiple-choice questions, and two hours on the essay question. Try to avoid the temptation to second-guess yourself on the multiple-choice questions – your initial instinct is often the most accurate.
2. THIS IS A CLOSED BOOK EXAM.
3. The exam has two components – a set of 40 multiple-choice questions, and a single essay question. The multiple-choice questions are each worth one (1) point, for a total of 40 points. The essay question is worth 60 points.
4. With respect to the multiple choice question section, you must complete your answers on the separate “ParSCORE TEST FORM” using pen or pencil and following the instructions on that form. If you change your answer, place a clear X through the wrong answer and mark the correct answer. A machine will score the exam and any ambiguities will be counted as a wrong answer.
5. With respect to the essay question, answer it as fully as you can, citing any appropriate cases, model rules, industry standards, and statutes that are relevant. Please answer the essay question in the blue books provided to you. Write only on the right hand side of the page (skipping a page each time) and double-space your work. Please write clearly. If I cannot read your response to a question, your grade will be adversely affected.
6. On the essay question, I recommend that you first spend about forty (40) minutes issue-spotting and outlining your response, before you start writing. This way you are less likely to miss issues or to submit a disorganized response. Points are deducted if you miss an issue. The essay question contains numerous issues. Each issue is worth the same amount of points (for example, if there are ten (10) issues, they are each worth 6 points towards the total of 60 points). To obtain a high score, you will need to properly identify and respond to all of the issues.
7. Write your exam number on your exam envelope. Put your correct class section and student exam # at the top of this page, each page of questions, each blue book, and the “ParSCORE TEST FORM.” Do not use your name, student ID number or Social Security Number on any exam materials.
8. At the conclusion of the exam, return all test materials, including blue books, ParScore answer sheet, scratch paper, and this exam packet to the envelope and submit it to the proctor. DO NOT seal the envelope. Students who do not return all exam materials at the end of the exam may not be graded.
Part 2 – Essay Question – Sixty (60) points
You have just been hired as an attorney with the Securities and Exchange Commission. You have been asked to review a file pertaining to a series of events relating to the Callisto Corporation. Your review of the file discloses the following history:
The Callisto Corporation manufactures surgical saws and hammers. In January 2004, Callisto’s CEO asked Doctor Hector to join its board of directors. Dr. Hector is also a member of the Board of Directors of MedCare Corporation, a diversified company made up of over 200 manufacturers of medical equipment.
Two months after Dr. Hector joined the Callisto board, he told his fellow directors on the MedCare board that he thought Callisto was a good target for a hostile takeover. He based his opinion on the Callisto confidential financial report he had read the night before, and on his knowledge that Callisto’s latest product was not going to be approved by the FDA – a fact told to him in confidence by the products department manager at Callisto. Based on this information, Medcare decided to attempt a hostile takeover of Callisto, having previously been turned down on its friendly offer of a merger.
In addition to his disclosure to the MedCare board, Dr. Hector told his brother Ajax about the pending takeover, before any public announcements have been made, or any registrations have been filed with the SEC. Ajax and Hector each bought 10,000 shares of Callisto and of MedCare, based on their belief that after the merger, the share price would double.
Meanwhile, at the law offices of Cable & Wire, counsel for MedCare, Gabby, secretary to Xena, the attorney handling the MedCare hostile takeover matter, noticed in Xena’s recycling bin, a letter to MedCare outlining the takeover. From this letter, Gabby figured out that if the takeover succeeds, the stock in both companies might go up. She then called her broker and bought 200 shares of stock in each company.
On April 1st, MedCare announced to the media its intent to proceed with a hostile takeover of Callisto by launching a proxy contest to obtain votes to replace Callisto’s board. In response, Callisto’s Board of Directors held an emergency meeting and adopted a “dead hand” poison pill rights plan. MedCare notified the SEC of its objections to the plan, alleging that the Board of Directors of Callisto were “entrenched” and were not acting in the best interests of the shareholders.
In the proxy solicitation it sent out to Callisto’s shareholders, MedCare promised to pay three times the market value for Callisto’s shares, and failed to disclose that the poison pill expenses, unless the pill was redeemed, would reduce the amount Medcare could afford to pay, by a factor of 50%.
Your supervising attorney asks you to write a memo summarizing whether any laws have been violated in this situation, what the violations were, and who has committed them. You are also asked to forecast, in the memo, what the likely effect of these violations will be on the proposed takeover of Callisto, and what the consequences of these violations will be for the individuals involved. Please prepare this memo, citing any relevant statutes, model rules, and cases.
END OF EXAM